Industrial, Transportation ETFs Get Upgrades From S&P

The industrial sector has been upgraded from "Marketweight" to "Overweight" by S&P Capital IQ. Factors supporting an investment in related sector exchange traded funds include improved global GDP anticipated in 2013 along with economic stability in China verified by positive economic data.

"We believe it stands to reason that if we see improvement in global GDP and an improved China economy, the Industrials sector should see improved demand for its products and services, which are closely tied to overall U.S. and global GDP growth. An improved global economy would likely lead to more demand for all types of industrial equipment, including construction and manufacturing equipment, as well as increased demand for transportation for all types of goods and services," S&P Capital wrote in a recent note.

The ETF Industrial Select Sector SPDR Fund (NYSEARCA:XLI) has been rated "Overweight" by S&P Capital IQ because of the possibility for this sector to outperform the broad market. XLI tracks the industrial sector in the S&P 500, with $3.6 million in assets under management. The funds has returned 13.43% year-to-date, and has one of the lower expense ratios at 0.18% within the sector. Last week's positive GDP report has put the U.S. industrial sector back in focus for many investors.

Another ETF that was upgraded was the Vanguard Industrials Index Fund (NYSEARCA:VIS) with $522 million in assets. The ETF's one-year total return performance as of December 10 of 15.3% was slightly below Lipper peers and the S&P 500, but its three-year return of 13.1% was ahead of both, reports S&P Capital.

A subset of the industrials sector is the iShares Dow Jones Transportation Average Index Fund (NYSEARCA:IYT) that touts $540 million in AUM. The fund has a 12-month return of 5.49%. Railroad operators make up a large portion of the ETF's holdings. This ETF is considered a barometer of the overall health within the U.S. economy, due to the focus on shipping, railways and the general export market.

iShares Dow Jones Transportation Average Index Fund

(click to enlarge)

Tisha Guerrero contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

We only use your contact details to reply to your request for more information.We do not sell the personal contact data you submit to anyone else.

Thank you for your interest in Seeking Alpha PROWe look forward to contacting you shortly for a conversation.

Thank you for your interest in Seeking Alpha PRO

Our PRO subscription service was created for fund managers, and the cost of the product is
prohibitive for most individual investors.
If you are an investment professional with over $1M AUM and received this message
in error, click here and you will be contacted shortly.

Thank you for your interest in Seeking Alpha PROWe look forward to contacting you when we have an individual investor product ready!